HF Financial Corp. Reports 12.5% Increase in Earnings in Fiscal 2014 to $6.6 Million or $0.94 per Share

Fourth Quarter Earnings Total $1.5 Million, or $0.21 per Share;

Loans Increase by $57.0 Million or 7.7% from the Third Fiscal Quarter;

Home Federal Bank Files Application to Convert from a Federally-Chartered Savings Association to a South Dakota State-Chartered Banking Corporation;

Declares Regular Quarterly Dividend of $0.1125 per Share

SIOUX FALLS, S.D., July 28, 2014 (GLOBE NEWSWIRE) -- HF Financial Corp. (Nasdaq:HFFC) today reported earnings of $6.6 million, or $0.94 per diluted share, for the twelve months ended June 30, 2014, compared to $5.9 million, or $0.83 per diluted share, for the twelve months ended June 30, 2013. For the quarter ended June 30, 2014, earnings increased to $1.5 million or $0.21 per share, versus $1.4 million, or $0.19 per share for the comparable period one year earlier. Net loans increased by $57.0 million or 7.7% from the previous quarter. Nonperforming assets as a percentage of total assets declined to 1.37% at June 30, 2014, from 1.50% one quarter earlier.

"Our fiscal 2014 results demonstrate the successful execution of our strategy to expand the reach of our banking platform without adding significant fixed costs. We are improving our operating efficiencies and generating solid loan growth. Loan growth was robust in the fourth quarter due, in part, to pent up demand from the harsh winter in our third fiscal quarter, the investment in new lenders in existing offices and the addition of lenders in our Minneapolis and Fargo offices. The economic base in the regions we serve is performing above national averages with respect to employment, and the South Dakota tax structure is attractive to relocating businesses," said Stephen Bianchi, President and Chief Executive Officer.

Today, Home Federal Bank ("Home Federal") announced that it had filed an application to convert from a federally-chartered savings association to a South Dakota bank. As a federally-chartered savings association, Home Federal's primary regulator is the Office of the Comptroller of the Currency ("OCC"). As a South Dakota bank, Home Federal's primary regulator would be the Division of Banking of the South Dakota Department of Labor and Regulation. The conversion will not affect customers and clients in any way, and they will continue to receive the same protection on deposits through the FDIC.

The move is primarily intended to allow Home Federal to work in closer contact with its primary regulator and is expected to result in cost efficiencies for the company. "Home Federal continues to have a strong and positive relationship with the OCC and looks forward to building a close working relationship with the Division of Banking in our home state," said Stephen Bianchi, President and CEO of Home Federal.

Fiscal 2014 and Fourth Quarter Financial Highlights: (at or for the periods ended June 30, 2014, compared to March 31, 2014 and/or June 30, 2013.)

• Earnings per diluted share for fiscal 2014 were $0.94 compared to $0.83 the previous year. For the fourth quarter, earnings per diluted share were $0.21 compared to $0.28 the previous quarter.
• Total loans increased to $811.9 million at June 30, 2014, from $695.8 million at June 30, 2013, an increase of $116.2 million or 16.7%. Relative to the previous quarter, total loans increased 7.6%.
• The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE") was 2.70% for fiscal 2014 compared to 2.63% for fiscal 2013. For the fourth quarter, the NIM,TE was 2.80% compared to 2.95% the previous quarter. A recovery of nonaccruing interest of approximately $490,000 partially led to a stronger margin in the third fiscal quarter.
• Deposit balances increased to $999.2 million at June 30, 2014, from $898.8 million one year earlier and from $952.4 million in the previous quarter.
• Nonperforming assets continued to decline and totaled $17.5 million at June 30, 2014, or 1.37% of total assets compared to $18.8 million at March 31, 2014, or 1.50% of total assets. One year earlier, nonperforming assets totaled $23.2 million, or 1.90% of total assets.
• Mortgage banking revenue totaled $4.6 million ($2.1 million of gains on sale of loans and $2.5 million of net loan servicing income) for fiscal 2014 compared to $5.1 million one year earlier. For the fourth quarter ended June 30, 2014, mortgage banking revenue totaled $699,000 compared to $1.0 million for the third quarter of fiscal 2014.
• Capital levels at June 30, 2014, continued to remain well above the regulatory "well-capitalized" minimum levels:
• Total risk-based capital to risk-weighted assets was 14.54% versus 15.27% at March 31, 2014.
• Tier 1 capital to risk-weighted assets was 13.38% versus 14.05% at March 31, 2014.
• Tier 1 capital to total adjusted assets was 9.49% versus 9.51% at March 31, 2014.
• The most recent dividend of $0.1125 per share represents the twenty-fifth consecutive quarter at this level and provides a 3.27% current yield at recent market prices.
• Tangible book value was $13.72 per share at June 30, 2014, compared to $13.41 per share the previous quarter and represents an increase of 4.81%. This increase in value combined with a total dividend of $0.45 results in an intrinsic return of 8.25% for the fiscal year.

Balance Sheet and Asset Quality Review

HF Financial's total asset base expanded slightly from the previous quarter to $1.27 billion from $1.26 billion. One year earlier, total assets were $1.22 billion. Though the asset base has reflected minimal growth, HF Financial has grown its loan portfolio and funded new loans in part with proceeds from short-term, liquid investments. In the fourth fiscal quarter of 2014, total loans increased $57.1 million to $811.9 million from $754.8 million. Total loans one year earlier were $695.8 million. Other than a small decline in consumer loans, the increase in the loan portfolio was reflected in all lending categories. Commercial real estate loans continued to represent the largest portion of the loan portfolio, which totaled 49.8% of the loan portfolio at June 30, 2014, followed by agricultural loans totaling 24.0%.

"Our lending team is gaining traction in the markets we serve. We have been strategic in hiring experienced loan and branch personnel, and we are beginning to attract new loan and deposit relationships to our bank. Both the deposit and loan growth generated over this past year are a result of initiatives put in place in fiscal 2013. The loan growth has contributed to a growing net interest margin. We expect those initiatives, along with continued focus on our corporate branding and product delivery efficiencies will contribute to stronger and sustainable earnings in years ahead," stated Bianchi.

Total deposits increased to $999.2 million at June 30, 2014, from $898.8 million one year earlier and $952.4 million at the end of the fiscal third quarter. Non-certificate accounts represented 73.8% of total deposits while certificates of deposit represented 26.2% of total deposits at June 30, 2014.

Borrowings decreased during the fourth fiscal quarter of fiscal 2014 to $120.6 million compared to $147.4 million in the third quarter.

Nonperforming assets ("NPAs"), which include $15.4 million of troubled debt restructurings that are in-compliance with their restructured terms and payments due, decreased to $17.5 million at June 30, 2014, from $18.8 million the preceding quarter and $23.2 million one year earlier. At June 30, 2014, NPAs represented 1.37% of total assets and included only $180,000 in foreclosed assets. "The low balance of foreclosed assets reflects our history of taking realistic reserves on foreclosed property giving us the ability to promptly dispose of the assets without incurring long carrying costs," stated Mike Westberg, Chief Credit Officer.

The allowance for loan and lease losses at June 30, 2014, totaled $10.5 million and represented 1.29% of total loans and leases. As the total of nonperforming loans has declined, the relative general reserve level has increased. Total allowance relative to total nonperforming loans was 60.7% at June 30, 2014, compared to 55.8% the previous quarter and 47.5% one year earlier.

Tangible common stockholders' equity increased to 7.62% of tangible assets at June 30, 2014, compared to 7.55% at March 31, 2014. The increase was due largely to a higher level of retained earnings and improvement in accumulated other comprehensive losses. Tangible book value per common share was $13.72 at June 30, 2014, up from $13.41 per share at the end of the previous quarter and $13.09 one year earlier.

Capital ratios continued to remain well above regulatory requirements with Tier 1 capital to risk-weighted assets of 13.38% at June 30, 2014, while the ratio of Tier 1 capital to total adjusted assets was 9.49%. These regulatory ratios were higher than the required minimum levels of 6.00% and 5.00%, respectively.

Review of Operations

For the fiscal year ending June 30, 2014, HF Financial's earnings reflected an improved net interest margin. Net interest income increased 9.5% to $31.1 million for fiscal 2014 compared to $28.4 million for fiscal 2013. The NIM, TE was 2.70% for fiscal 2014 compared to 2.63% for fiscal 2013. For the quarter ended June 30, 2014, net interest income increased 20.7% to $8.2 million compared to $6.8 million one year earlier. The NIM, TE for the fourth quarter of fiscal 2014 was 2.80% versus 2.95% for the third quarter of fiscal 2014, but the previous quarter included a 17 basis point increase attributed to a recovery of nonaccrual interest of approximately $490,000. "We are beginning to see expansion in our net interest margin as we redeploy funds from short-term investments into higher yielding loans. We have the capacity to continue expanding our loan portfolio without seeking outside funding sources which should result in continued net interest margin expansion," stated Brent Olthoff, Chief Financial Officer and Treasurer.

Provision for loan losses was $607,000 for fiscal 2014, compared to $271,000 for fiscal 2013. For the fourth quarter, loan loss provisions totaled $328,000 compared to $260,000 the previous quarter and $443,000 one year earlier. "Though the economies in the markets we serve remain healthy, we intend to prudently add reserves based in part on our historical loss experience. As our loan portfolio begins to expand, we will also be adding to our reserve balances," continued Olthoff.

Noninterest income totaled $15.0 million for fiscal 2014 compared to $15.1 million in fiscal 2013. Gain on the sale of loans continued to decline from previous periods as refinancing activity has declined due to a slight rise in mortgage rates. Mortgage activity produced $2.1 million in gains during the fiscal 2014 compared to $4.6 million during fiscal 2013. For the fourth fiscal quarter of 2014, gains on sale totaled $358,000 compared to $344,000 for the third fiscal quarter of 2014 and compared to $1.0 million one year earlier. Net loan servicing income totaled $341,000 for the fourth fiscal quarter compared to $703,000 in the third quarter of fiscal 2014 due to the full recovery of the $374,000 allowance remaining in the third quarter of fiscal 2014. The growth of the deposit portfolio has provided additional deposit-based fee income. Fees on deposits totaled $1.54 million for the fourth quarter of fiscal 2014 versus $1.47 million the third quarter and $1.58 million the fourth quarter in fiscal 2013.

Noninterest expense increased to $36.0 million in fiscal 2014 compared to $34.3 million in fiscal 2013 due primarily to increased compensation and benefits. For the fourth quarter of fiscal 2014, noninterest expense totaled $9.0 million compared to $8.9 million during the previous quarter. The increased expenses generally related to reduced deferred loan costs and increased variable pay related to production and financial outcomes over the past year.

These financial results are preliminary until the Form 10-K is filed in September 2014.

Quarterly Dividend Declared

The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the fourth fiscal quarter of 2014. The dividend is payable August 15, 2014 to stockholders of record August 8, 2014.

Use of Non-GAAP Financial Measures

This press release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). "Net Interest Margin, TE" is a non-GAAP financial measure. Information regarding the usefulness of Net Interest Margin, TE appears in the notes to the attached financial statements. The Company believes that the presentation of non-GAAP financial measures will permit investors to assess the Company's core operating results on the same basis as management. Non-GAAP financial measures should be considered supplemental to, not a substitute for or superior to, financial measures calculated in accordance with GAAP. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies. Reconciliation of the non-GAAP measures to the most comparable GAAP measures are set forth in the notes to the attached financial statements.

About HF Financial Corp.

HF Financial Corp., based in Sioux Falls, SD, is the parent company for financial services companies, including Home Federal Bank, Mid America Capital Services, Inc., dba Mid America Leasing Company, Hometown Investment Services, Inc. and HF Financial Group, Inc. As a publicly traded savings association headquartered in South Dakota, HF Financial Corp. operates with 28 offices in 19 communities, throughout Eastern South Dakota, Minnesota and North Dakota. The Company operates a branch in the Twin Cities market as Infinia Bank, a Division of Home Federal Bank of South Dakota, and a loan production office in Fargo, North Dakota. Internet banking is also available at www.homefederal.com and www.infiniabank.com.

This news release and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, contain "forward-looking statements" that deal with future results, expectations, plans and performance. In addition, the Company's management may make forward-looking statements orally to the media, securities analysts, investors or others. These forward-looking statements might include one or more of the following:

• Projections of income, loss, revenues, earnings or losses per share, dividends, capital expenditures, capital structure, adequacy of loan loss reserves, tax benefit or other financial items.
• Descriptions of plans or objectives of management for future operations, products or services, transactions, investments and use of subordinated debentures payable to trusts.
• Forecasts of future economic performance.
• Use and descriptions of assumptions and estimates underlying or relating to such matters.

Forward-looking statements can be identified by the fact they do not relate strictly to historical or current facts. They often include words such as "optimism," "look-forward," "bright," "pleased," "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may".

Forward-looking statements about the Company's expected financial results and other plans are subject to certain risks, uncertainties and assumptions. These include, but are not limited to the following: possible legislative changes and adverse economic, business and competitive conditions and developments (such as shrinking interest margins and continued short-term environments); deposit outflows, reduced demand for financial services and loan products; changes in accounting policies or guidelines, or in monetary and fiscal policies of the federal government; changes in credit and other risks posed by the Company's loan and lease portfolios; the ability or inability of the Company to manage interest rate and other risks; unexpected or continuing claims against the Company's self-insured health plan; the ability or inability of the Company to successfully enter into a definitive agreement for and close anticipated transactions; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation; and the other risks detailed from time to time in the Company's SEC filings, including but not limited to, its annual report on Form 10-K for the fiscal year ending June 30, 2013, and its subsequent quarterly reports on Form 10-Q.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Although the Company believes its expectations are reasonable, it can give no assurance that such expectations will prove to be correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements.